Expect More Stock Market Declines

I predict more stock market declines on Monday, considering the current state of affairs in Congress

Stock markets will likely decline on Monday, due to the current political impasse in Congress. Stock markets last week were a mixed bag, with the S&P 500 (SPY) losing .07%, the Dow Jones Industrial Average (DIA) losing 1.22%, and the NASDAQ 100 (QQQ) gaining 1.22%.

Last week was a roller coaster for stock markets, as Congress whipsawed investors over the US Government shutdown and the debt ceiling debates. With new lines now drawn in the sand, both sides appear to be completely unwilling to compromise on their positions to raise the debt ceiling, and we only have 11 days left before the United States begins running out of cash. Since both sides will not likely concede tomorrow over how the debt ceiling will be raised (if it will be raised at all), I predict stock market declines as investors become more and more nervous.

We are also again at the beginning of a new earnings season, starting with the all important bellwether earnings report from Alcoa (AA). The aluminum provider is expected to have a negative report (according to JP Morgan (JPM)), and I believe this quarter’s earnings reports will be a mixed bag as well. Tomorrow we are also due for a new Consumer Credit Report, which will likely also be in the red due to sluggish retail markets.

Internationally, European stock markets died on a vine last week, and Asian markets are down at the time of this writing. It appears that the closer we get to October 17th, the more jittery investors are becoming.

US futures markets are also deep in the red at the time of this writing, further emphasizing my prediction that stock markets will decline Monday. Go ahead, blame Congress.

The VIX Index, or the fear index as it is known to many investors, finished up over 8% last week, suggesting that investors are indeed full of fear, and more political brinkmanship this week will likely not soothe anyone. Will the VIX break its “average” of 20 points? Could be possible.

From a technical perspective, the S&P 500 (SPY) has bounced along its 50 day moving average this past week, suggesting that investors are still waiting to see what the final Congressional decision will provide. The 50 day moving average has provided a strong level of support for the S&P 500 (SPY) and it will likely take more political volatility to break it open. Still, I think we have plenty of political volatility in the near future, so I could easily see a break through the 50 day moving average for the S&P 500 (SPY) if a compromise is not made soon.

Lastly, my fun fact for the day is actually a trick question: If “pro” is the opposite of “con,” then what is the opposite of “progress?” You guessed it: Congress!

Bottom line: I predict stock market declines Monday due to the fact that Congress is stuck in the mud. With just 11 days left to find a solution, investors appear to be getting jittery.

Disclaimer: The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector's Disclaimer, Terms of Use, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.